View from City Road: M&G premium looks shaky

Click to follow
The Independent Online
M&G knows more about marketing financial products than most companies. But even it knows that the effects of a sales campaign do not live on for ever.

It succeded in raising pounds 246m and pounds 130m respectively for its two investment trusts, Income and Recovery, last year. Its success was such that, unusually, the shares of both trusts have traded at a premium to net assets almost ever since. It has not, however, been able to stop the shares falling with the market as a whole.

They are currently trading at a 15 and 22 per cent premium to net assets respectively, whereas the sector trades on average discount of 19 per cent.

Can the M&G trusts continue to defy the gravitational pull of other investment trusts? M&G may have pointed to the answer yesterday when it announced it had sold some of its holding in M&G Recovery Investment Trust, reducing its stake to a still substantial 10.8 per cent. It also has a substantial stake in the Income trust.

A spokesman said the company had sold the stake because the fund manager reckoned he could find a higher yield elsewhere.

M&G's disposal illustrates the disadvantage of allowing a fund management company to invest in its own products. M&G puts its own money in the investment trusts and unit trusts it manages, because, it says, this avoids the conflicts of interest involved in investing in other firms' products.

Other shareholders of its investment trusts might be tempted to follow M&G's lead. If so, the shares could soon fall back towards asset value, especially in the absence of marketing support.

The shares are unlikely to hold their premium.

Comments